Nowcasting Mexican GDP using ARIMA error modelling: Electronic payments as complementary indicators of economic activity
Abstract
Many economies have been leveraging real-time electronic payment systems to drive financial innovation and inclusion. This paper assesses whether data from Sistema De Pagos Electronicos Interbancarios (SPEI), an interbank electronic funds transfer system owned and operated by Banco de Mexico, can improve the timeliness and accuracy of Mexico’s gross domestic product (GDP) forecasts by acting as a complementary indicator of economic activity. In addition to being almost immediately available to the Central Bank, SPEI data is extremely comprehensive and about 168 times larger than credit and debit card transactions. The paper presents a cointegrated forecasting model using SPEI as the sole predictor of GDP. In the next stage, they build an auto regressive integrated moving average (ARIMA) model using the residuals of the cointegrated model. Compared to much more sophisticated, data-intensive models, the paper shows that using a complementary indicator like SPEI can be a parsimonious forecasting alternative, especially during highly volatile periods when it can mitigate information gaps. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/ business/.
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Author's Biography
Dr Sudhakar Raju holds a primary appointment as Professor of Finance & Data Science at the Helzberg School of Management, Rockhurst University, Kansas City, MO. He also has a secondary appointment at Harvard University, Cambridge, MA, where he teaches courses on quantitative methods and machine learning, and is a recipient of the Harvard Kennedy School Teaching Excellence Award. Dr Raju has been a consultant to various organisations, including the World Bank, UNDP, Chicago Board of Trade, stock exchanges and central banks. He has published widely on risk management, portfolio management, econometrics and machine learning. His paper on artificial intelligence in the Geosciences was nominated for a Best Paper Award. He holds a graduate degree in public policy from the Harvard Kennedy School, Cambridge, MA.
Mahadevan Balakrishnan is currently Postdoctoral Research Fellow at the Centre for Digital Public Goods, Indian Institute of Management, Bangalore (IIM-B), India. He has been a pivotal figure in the digital transformation of payments in India, making significant contributions through leadership roles in major banks and at the National Payments Corporation of India (NPCI). As the Chief Operating Officer at NPCI, he played an instrumental role in developing innovative payment systems such as the Immediate Payment Service (IMPS) — which forms the foundation of the Unified Payments Interface (UPI) and the instant payments ecosystem — Aadhaar-enabled payments, the National Automated Clearing House (NACH) and the RuPay domestic card scheme. The NPCI’s neutral, not-for-profit and collectively governed model has since become a global standard for digital public infrastructure. Following his impactful tenure at NPCI, Dr Balakrishnan advised over two dozen developing countries on enhancing financial infrastructure and digital payment ecosystems during his work with the World Bank. His career spans more than three decades and includes senior roles at leading financial institutions such as ABN AMRO, Barclays, Citibank, DCB Bank, as well as NPCI and the World Bank. This extensive experience positions him at the intersection of policy, technology and institutional design within the payments domain. Dr Balakrishnan holds multiple advanced degrees, including an MBA in finance, a master’s in political science and public administration, a master’s in bank management and a PhD in finance and payments. A prolific author, he has published over 30 articles in national and international journals and serves on the editorial boards of two leading journals focused on payments and banking. His primary research interests encompass payments — particularly fast and instant payments — and the development of digital public infrastructure.
